The element lithium is indispensable to lithium-ion batteries which power most electric vehicles today. It is used in the positive electrode (cathode) of the battery.
But, since late 2020, lithium prices have been rising rapidly. In the past year Chinese lithium carbonate – the compound usually used to make EV batteries – gained almost 500 percent, reaching a record $78,000 per tonne this month.
Or, as Elon puts it, “Price of lithium has gone to insane levels!”
The Tesla CEO also indicated that the company “might actually have to get into the mining and refining directly at scale, unless costs improve.”
“We have some cool ideas for sustainable lithium extraction & refinement,” Musk added in another tweet.
There’s No Shortage
Lithium is abundantly available. Most of it is extracted from a mineral-rich brine found underground. This brine is pumped up to the surface and left to dry, leaving behind lithium carbonate which is distilled and used in batteries. It is also mined from rock deposits.
Studies suggest that even with growing demand only a fraction of our total lithium reserves will be extracted over the next few decades. Most other elements used in lithium-ion batteries, including manganese, nickel, and natural graphite, are also in abundant supply.
The Lithium Triangle – comprising of Bolivia, Argentina and Chile – possesses 47 million tonnes of lithium resources – around 65 percent of the global total, according to the US Geological Survey. However, Australia is the biggest producer of lithium in the world.
The US has the fourth largest reserves in the world. It is also home to three of the biggest lithium mining companies – Albemarle, SQM and Livent. The state of Nevada is particularly rich in lithium.
US' untapped reserves mean that Elon Musk could open a mining and refining facility there.
Why Are Prices Soaring Then?
Ramping up production of Lithium is a slow process. It takes at least five to seven years to build a lithium mine and the facilities to process the ore and convert it into chemicals take two-three years to set up. However, the demand for lithium is growing exponentially thanks to EVs.
Global EV sales reached 6.75 million units in 2021, 108 percent more than in 2020 according to EV Volumes. Market share doubled from 4.2 percent to 8.3 percent in just one year.
Tesla led the pack, doubling its deliveries to 9,36,000 vehicles in 2021. The Model-3 reached 501 000 units and became the 2nd most sold midsize nameplate after the Toyota Camry. China also experienced an EV boom with sales jumping by more than 2 million units.
Because of this, there will be a 26,000-tonne shortfall in 2022 and a 300,000 tonne by 2030, Benchmark Mineral Intelligence (BMI) estimates. This deficit is expected to grow in the coming decades.
Lithium prices saw a slight dip on 12 April due to the pandemic induced lockdowns in China.
“Downstream demand is weakening as the pandemic hinders carmakers’ production in China and inventory levels remain high at battery manufacturers,” said Maria Ma, an analyst at Shanghai Metals Market, told Bloomberg. “Companies are also pressured by the elevated lithium prices and there’s strong price resistance.”
Several automakers including Tesla and Volkswagen have been forced to suspend production at their factories in Shanghai after a citywide lockdown, which could put a damper on overall EV sales and bring down lithium prices.
Nickel Soared, Too
Between 6 and 8 March, the price of base metal nickel rose 250 percent to cross the $100,000-per-tonne mark and hit an all-time high.
The jump was so drastic that the London Metal Exchange (LME), which is the world's largest futures and options exchange for base metals, suspended the trade of nickel.
Chinese metals tycoon Xiang Guangda who owns one of the largest nickel and steel producers, Tsingshan Holding Group Co, had expected nickel prices to fall this year and started building a short position last year.
When Russia invaded Ukraine, traders were fearful that the sanctions could disrupt these supplies and that led to a rise in prices.
Tsingshan, in an effort to mitigate their short position, started buying large amounts of nickel, raising the prices even further and leading to this disaster, sources told Reuters.
Nickel, which is mostly used to produce stainless steel, is also a critical ingredient in the lithium-ion and lithium-ion polymer batteries used in most electric vehicles.
Adding more nickel to the cathode increases a battery’s energy density, which means automakers can increase the range of their vehicles without increasing battery weight.
Lithium ion batteries used to have around 33 percent nickel in their composition, but most have shifted to around 60 percent. The batteries that LG Energy Solution supplies to Tesla has cathodes which are 90 percent nickel, according to a Reuters report.
(With inputs from Bloomberg and Reuters)
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